Pakistan's last IMF bailout?

Credible opportunity exists to graduate from cycle of repeated IMF programmes The objective should be different this time: to make the IMF a source of advice rather than emergency financing. PHOTO: REUTERS As Pakistan enters the final year of its $7 billion, 37-month Extended Fund Facility with the International Monetary Fund, it stands at a crossroads. The question policymakers must now answer is not simply how to complete the programme, but what comes next. For the first time in many years, Pakistan has a credible opportunity to graduate from its cycle of repeated IMF programmes. The economy is hardly out of danger, and the vulnerabilities that have produced successive balance of payments crises have not disappeared. But the country is entering this final year from a considerably stronger position than it was in 2023. Pakistan's foreign exchange position provides a much stronger buffer than it did during the 2023 crisis. State Bank reserves have risen to about $21.4 billion, while total liquid reserves, including those held by commercial banks, stand at about $26.8 billion. The central bank's reserves now provide roughly three months of import cover. Pakistan has also regained access to international capital markets. In September, it raised a record $3 billion through a dual-tranche Eurobond, attracting almost $6 billion in orders. The transaction demonstrates that international investors are once again willing to lend to Pakistan, giving the country another source of external financing beyond official creditors. A proposed $10 billion exchange stabilisation facility from the United States could provide an additional layer of insurance. The proposal, currently under discussion, is neither a loan nor a grant. If agreed, it could provide a financial backstop and strengthen market confidence. More importantly, Pakistan's underlying external position has improved substantially since the crisis of 2023. In addition to the sharp increase in foreign exchange reserves, workers' remittances reached a record $41.6 billion in fiscal 2026, compared with $27.3 billion three years earlier. Services exports have crossed $10 billion, with information technology and digital services leading the expansion. ICT exports alone reached about $4.6 billion in fiscal 2026, growing by more than 20% annually. Pakistan's current account, reflecting financial transactions with the world, including trade, investment, and transfers, has been in surplus or broadly balanced for the first time in 14 years. The government is also running a substantial primary surplus, meaning that revenues exceed expenditure before interest payments. The rapid adoption of solar power is also reducing Pakistan's dependence on imported fuel. This is expected to reduce the annual energy import bill by roughly $5 to $8 billion, depending on international crude oil prices. The one major macroeconomic area where there has been little progress is merchandise exports. They have broadly remained in the range of $25 to $32 billion for around 15 years. With imports continuing to grow, the trade deficit has also widened. There are, however, reasons for cautious optimism. Pakistan is now in the second year of a five-year trade liberalisation programme, and its impact should become increasingly visible over the next two to three years through higher exports and a narrowing trade deficit. Privatisation is also moving in the right direction. The sale of Pakistan International Airlines has broken a longstanding stalemate, while the privatisation process for the first three electricity distribution companies has advanced to the investor engagement and transaction stages. Other state-owned enterprises and public assets are also being prepared for divestment. None of this guarantees that Pakistan will avoid another crisis. An oil price shock, geopolitical disruption, a sudden stop in capital inflows, or a return to fiscal slippage could once again put pressure on the balance of payments. The external financing requirement for 2027-28 alone demonstrates how exposed the country remains. A large reserve buffer is valuable, but it cannot indefinitely compensate for weak exports and large debt repayments. That is why the coming year matters so much. Pakistan should complete the current IMF programme successfully. It should remain closely engaged with the Fund, draw on its technical expertise, and maintain the fiscal and monetary discipline that the programme has helped impose. But it should not assume that the expiry of the programme automatically requires another one. The objective should be different this time: to make the IMF a source of advice rather than emergency financing. Graduating from IMF programmes would not mean that Pakistan has solved all its economic problems. It would mean that the country has finally developed the capacity to address them without another bailout. That is the real test of the current programme. Not whether Pakistan can complete another IMF arrangement, but whether it can make this one its last. The writer is a Senior Fellow with the Pakistan Institute of Development Economics and has previously served as Pakistan's ambassador to the WTO